2.4 Flashcards
Capacity utilisation
% of business capacity being used
= (Actual output/Maximum possible output) x100
+ Lower unit cost, more competitive
- Can’t meet demand surges
- Rushed production
Advantage: boosting utilisation cuts fixed costs per customer and therefore allows higher profit margins
Disadvantage: boosting demand might be achieved by cutting prices, but if prices are cut by more than the reduction in fixed costs per unit, profit margins could fall, not rise.
How to improve capacity utilisation
Outsource some of production – by outsourcing some of the production process it allows the business to increase its current output. Reduce machine maintenance
Quality assurance
Quality is built in, product is checked at every stage in production, so faulty products aren’t produced and zero defects
+ Products have quality first time
+Stops complaints/dissatisfaction
- Time consuming
- Costly to train safe
Quality control
Finished products are checked to see if they meet a set standard, they are either reworked or they are discarded
+ Reduces chance of poor quality
+ Only some employees need to be trained in it
- Faults only found at the end
- Reworking is costly and time consuming
JIT/JIC
Just in time: Holds no stock, relies on deliveries coming exactly when needed
+ No money tied up in inventory
- Delay in delivery = stop in production
Just in case: Larger amount of inventory than needed
+ Meet demand/don’t run out
- May go out of date/expensive to store
Buffer stock
Minimum level it is kept
Re-order level: When stock is reordered
Lead time: Time taken for stock to arrive
High and low stock
High stock:
- Can be wasted
- Extra stock is a cost
- Out of date
- Cost to store it
Low stock:
- Difficult to meet demands
- Waiting to arrive
- Loss of repeat purchase
- Loss of sales/profit
Productivity
Output per worker
= Total output/number of employees
Job production
E.g. house extension
- One off/bespoke products
- Focuses on customer needs
- Requires skilled workforce
Batch production
E.g. batch of cupcakes
- Some flexibility e.g. colour/flavour
- Semi-skilled workforce
- Some levels of automation
Flow production
E.g. mass produced laptop
- High volume/low margin
- Highly automated
- Low skilled workforce
Product/market development
Product: Introducing new products into existing markets
Market: Introducing existing products into new markets
Absolute and comparative advantage
Absolute: Ability of country/company to produce a good at a lower cost than another
Comparative: Ability to produce a good at a lower opportunity cost than another
Cell production
Splitting flow production into self-contained groups that are responsible for either whole products or a certain part of the overall process. These teams are multi-skilled and will cover each others shifts
Efficiency
Producing a level of output where average cost is minimised and excess waste is cut
